This week, the Affordable Care Act is once again front and center. The law, which is under attack in a case that will soon appear before the Supreme Court, has become an integral part of the coming election.
Given this background, don’t conflate my following critique with saying the law shouldn’t exist—it really should.
Rising medical debt
But the Affordable Care Act has some real weaknesses. Besides greatly encouraging provider consolidation (in a way that even key drafters of the law have since noted was a mistake), the law did not put safeguards in place to rein in health care or insurance costs. While the law has increased access to insurance, it hasn’t necessarily increased access to care, in party because employers/consumers have tried to circumvent ever-rising costs by adopting high-deductible health plans.
High-deductible health plans (HDHPs) are exactly what they sound like. The deductible is the amount a patient must pay before their insurance kicks in—HDHPs set that amount high, usually several thousand dollars, in exchange for lower monthly premiums. But many patients can’t afford to cover the deductible if they need care.
HDHPs and the rise of surprise billing have both contributed to ever-rising medical debt, even as the ACA expanded the number of insured Americans. According to a 2014 Consumer Financial Protection Bureau report on consumer medical debt, approximately half of all collections tradelines on credit reports are by debt collectors trying to collect on medical bills.
This might not be entirely patients who can’t pay their bills, either. Evidence from that 2014 CFPB report suggests that some patients may just be confused about or unaware of how much they owe—the median unpaid medical collections tradeline is around $200, and many patients with medical debt have no other debt. The CFPB notes, “[l]ack of price transparency and the complex system of insurance coverage and cost sharing means many consumers, including those who have health coverage, receive medical bills that are a source of confusion.” The complicated health care billing system—where bills loop from the hospital to the insurer and back to the patient—means that some bills might not reach patients for months. It’s often unclear exactly how much the patient owes.
Regardless of the cause, rising medical debt isn’t just a problem for patients, it’s also a problem for hospitals. Many hospitals (although certainly not all) operate on thin margins. If a large percentage of patient payments are outstanding, the hospital may have trouble staying afloat. But tracking down patients and hounding them about payments is a sad and logistically complicated task, and it’s only getting more complicated as medical debt becomes a more frequent occurrence.
Revenue cycle management
Some hospitals simply throw good PR practices and moral compunctions to the wind and sue their patients. Methodist Le Bonheur Healthcare, a hospital system in Tennessee, took this approach, suing patients (including the hospital’s own employees!) and garnishing the wages of people who made very little to begin with. After a ProPublica investigation, the hospital backed down.
Most hospitals want to collect their debt in a timely manner that doesn’t result in investigative journalism stories. And because it can be pricey to staff and maintain an internal workforce to track down patients, most hospitals want to outsource the debt collection task.
Enter revenue cycle management companies. The term “revenue cycle management” was almost certainly conceived so these companies could call themselves something other than debt collectors, but that’s more or less what they are. RCM companies use “technology” (database software, intense scrutiny of medical codes, and probably data scraping) to track down patients and hound them for money. The RCM company sells its efficiency and rapid collection timeline (more on that later) to the hospital, and it in turn makes money on a percentage of the debt returned.
As Eileen Appelbaum, an expert on private equity in health care, notes in a recent report, RCM companies tailor their marketing to the aggressiveness of the hospital. She writes: “[t]o hospitals or other providers that sue[,] the RCM companies tout their aggressive bill collection practices, which do not include suing patients, as an alternative that can protect the hospital’s reputation. To those that don’t use aggressive practices to collect hospital charges, they argue that the hospitals are leaving money on the table that their RCM company can collect.”
Private equity’s foothold
Under the U.S. health care status quo, medical debt is unavoidable. For hospitals to stay afloat, they have to collect some portion of their bills.
As in other health care subsectors though, the entry of private equity warps further the already-broken system. Utilizing its typical playbook—rolling up small, related companies to gain a powerful foothold in the market—private equity has begun to change the rules of the medical debt collections game.
Pressure from RCM companies might incentivize hospitals to raise their prices. There’s evidence that private equity is more aggressive in its bill collections than a hospital-based or small business-based debt collections system is. The private equity system, divorced from hospital collections as it is, has less responsibility to verify the accuracy of the bill they’re pursuing. And for all this downside, they don’t necessarily turn bills around faster than the other systems.
Because the private equity business model is to pull as much money out of the system as possible in a 3 to 5-year timeframe, private equity-owned RCM companies more or less have a mandate to collect as much from patients as possible, as quickly as possible. This likely results in higher costs for patients. The RCM company is incentivized to take a higher percentage of the collected debt, and if the hospital is locked into a contract with that RCM company or has no other options, the hospital has to agree. The hospital might struggle to hit the new targets and so raise its prices.
Private equity-owned RCM also seems to be linked with aggressive pursuit of patients—in effect outsourcing the heavy-handed tactics of Methodist Le Bonheur to a separate company. Complaints to the FCC about medical debt collectors have recently increased. And between 2010 and 2014, there was a 560% increase in the number of lawsuits filed for RCM and other bill collectors’ violations of the Telephone Consumer Protection Act. Beginning with its 2014 report on medical debt, the CFPB took notice of the (largely private equity-owned) medical debt system and filed at least one enforcement action—although the Trump administration has hampered further investigations.
Another strange facet of medical debt collection in general—although it’s heightened by private equity-owned RCM companies—is that many medical bills are simply…incorrect. The complexities of billing for medical services combined with the lack of incentive to double-check medical bills means that medical bills are riddled with errors. When a hospital handles its own RCM, it may be easier to dispute clerical errors or confusing bills. But when the RCM is outsourced to a large entity handling tens of thousands of bills, with no direct communication with the hospital or incentive to check accuracy, it can keep patients from understanding what they really owe.
Does private equity have any upside for hospitals? Appelbaum notes that private equity has invested heavily in health care IT, and there could be some extension of that technology to the RCM space. But other evidence suggests that the sales pitch might just be good marketing. A 2018 survey found that in-house RCM has only a slightly lower rate of patient payments. Furthermore, outsourced RCM, on average, took much longer (109 days to receive payment) than in-house RCM (76 days).
(POS = point of service, or payments at the time that the patient is in the physician’s office or hospital); source: https://www.crowe.com/-/media/Crowe/LLP/folio-pdf-hidden/Benchmarking-Report-Q2-HC-19006-012A.ashx?la=en-US&hash=01900EF19DAD890CF6B3A0543EDC71FCA038EA60
Private equity is also interested in other aspects of patient medical bill collection. Interest-free loans for medical care originated as a good-faith attempt by hospitals to help patients cover their care. However, two companies that offer interest-free medical loans, ClearBalance and CarePayment, have both recently been acquired by private equity.
The two companies now employ tactics that seem shady at best and deliberately misleading at worst. While in treatment, a patient is offered an interest-free loan for a certain amount. If the patient signs, they are now on the hook for the agreed-upon amount—even if the medical treatment ends up costing less than the original estimation. There’s an incentive for ClearBalance and CarePayment to estimate higher costs than the patient should otherwise expect, and the timing—coming to a patient while they’re in the treatment process—can create an emotional coercion element.
"The hospital potentially is charging the patient the full, what I would call 'whack rate' for their care," Kathleen Engel, a research professor of law at Suffolk University told CNN. "They try to collect the debt."
While not quite as coercive as private equity in ambulance transport or abusive as private equity in behavioral health, the roll-up of RCM companies financializes the broken health care system further. Private equity entities monetize the inability of patients to pay, and it’s all downside for the patient (and possibly even for the hospital). Getting private equity out of health care is a necessary step to fixing the American health care system.